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McAfee CEO David DeWalt

When Intel announced last August that it would acquire McAfee at a 60% premium, I and many others were left scratching our heads. What does the world's largest microprocessor company want with a security software firm?

Low-level hardware and antivirus software didn't seem like an obvious match. Forrester analyst Andrew Jaquith wrote that "while Intel’s stated rationales for doing the McAfee deal are very forward-looking, its likely actual revenues are mostly about the past." Security industry analyst Richard Stiennon wrote in a post here on Forbes that the deal was the worst--as well as the largest--pure-play security acquisition ever, and urged the companies not to consummate the deal.

Needless to say, they didn't take his advice. The deal closed in February. And when I sat down with McAfee CEO David DeWalt in McAfee's Santa Clara office, he enthusiastically defended his company's sale to Intel. DeWalt argued that the buyout gives McAfee a chance to dig deeper, not into computers' hardware but into its software, that it offers McAfee a new angle into embedded systems, and that the company has a bright future in the post-PC world.

Here's an edited transcript of our conversation. I've also embedded a video below that captured a few of my questions. (Mostly the more polite ones.)

Andy Greenberg: I’d like to start by asking about your acquisition by Intel, which puzzled a lot of analysts. Can you explain the deal’s rationale?

David DeWalt: Well, there's a multitude of reasons why Intel ended up acquiring McAfee. Maybe I'll just start with the basics. I mean, typically shareholders will look at this transaction first financially. So, the first reason for the transaction is that McAfee's accretive across the income statement and the balance sheet.

When you look at pure financial math, this is an outstanding transaction. We are accretive on growth, accretive on our gross margins, operating margins, cash flow, nearly every component of the income statement, we're accretive on.

AG: Right, there's no doubt that McAfee is a great source of growth for Intel.

DD: But, you know, growth aside, there's a lot other technology reasons for it. Probably the biggest reasons are the last four years, and I’ve been CEO for four years now, was that we've seen a tremendous change in the security marketplace.

When I first arrived, we were seeing somewhere in the neighborhood of about three million bad pieces of content a year. And sounds like a big number, but you know, three million pieces of malware, viruses, trojans a year was pretty extensive. We've literally seen an exponential increase in that in the last four years. We're now tracking somewhere in the neighborhood of 48 million bad pieces of malware now. The cost of offense remains very low, and the cost of defense is very high.

AG: Right, so that explains perhaps why McAfee is growing. But why does a chip company want to be a part of this business?

DD: So, because of the malware growth, and because of the changes in the landscape, the amount of devices we're seeing, a new security model needed to be presented. We'd worked with Intel for nearly 18 months prior to the announcement of the acquisition, designing and prototyping next generation security models.

And what we had discovered was, there are a tremendous amount of features that are in the silicon today that the security models could leverage to improve the overall protection of the stack, if you will.

So, we're releasing a number of new products. We have a new product coming out soon that we're excited about, that we feel is a very substantial improvement on the security model, enabling features in the hardware layer. These are features that have been shipping for years in the core CPU processors. We've developed ways to build a much safer model, by utilizing and leveraging capabilities in the hardware and the silicon layer.

AG: In the first days after the acquisition was announced, many people interpreted the idea of combining Intel and McAfee’s products as embedding security features into silicon. I’ve never understood exactly what that meant.

DD: We’re not embedding anything into the silicon. What we’re doing is utilizing features that exist today with the technologies McAfee has to secure the stack in a way that's never been done before.

I want to be clear, this isn't about embedding something in silicon. We can't do that. In fact, I would argue that embedding security into silicon has already been done. The silicon's already shipping all over the world today, in production. What people don't realize is Intel's already innovated security capabilities into the hardware. That's already shipping. Intel has antitheft built into their technologies today.